Glossary for Accounting and Finance

 

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Hi All,

Below is a list of relevant terms related to accounting and finance world.

Account Payable	Amount due for payment to a supplier of goods or services from whom raw materials are purchased on credit.
Account Receivable	Amount due from a customer to whom goods are sold on credit.
Accounting	The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of the information.
Accounting Equation	Assets = Liability + Equity
Accounting Period	Time period for which financial statements are prepared (e.g. month, quarter, year).
Accruals Basis Of Accounting	Revenues are recorded once they are earned and expenses are recorded when they are incurred instead of when the actual cash flows occur.
Administrative Expenses	These include expenditure on items such as rent, warehouse costs, printing and stationary, freight charges, etc.
Amortisation	It refers to the fall in value of intangible assets with the passage of time.
Adjusted Present Value (APV)	APV = Net Present Value + additional financial benefits and costs resulting from funding a project/company using debt.
Assets	These are economic resources that are owned by the company.
Balance Sheet	It tells you about the financial position of a company at a certain point of time.
Capital Expenditure	It refers to the amount spent by a company on acquiring fixed assets.
Capital Rationing	It involves deploying the limited capital into a combination of available projects which will maximize shareholder’s return.
Capital Structure	Debt and equity are together known as the capital structure of a company.
Cash Basis Of Accounting	Revenue and expenses are recorded at the time of movement of cash, i.e. when cash is received or paid.
Cash Conversion Cycle (CCC)	It represents the number of days it takes for a firm to convert its investment in inventory to cash.
Cash Flow Statement	It provides information about a company’s cash receipts and cash payments during an accounting period.
Compounding	It refers to the process of converting the present value of a given amount of money to its future value
Cost Of Debt	The amount of interest that a company pays on debt is called the cost of debt.
Cost Of Equity	The charges paid against the owner’s fund is known as the cost of equity
Cost Of Goods Sold	It refers to the cost incurred in the production of the goods or services sold
Current Asset	These can be converted into cash and cash equivalents within 12 months or one operating cycle
Current Liabilities	These are those liabilities that are due and payable within one financial year or operating cycle, i.e., within 12 months.
Days Inventory Outstanding (DIO)	This metric helps in calculating the number of days that a company takes to sell off its inventory.
Days Payable Outstanding (DPO)	This metric helps in calculating the number of days that a company takes to pay off its suppliers from whom raw materials are purchased on credit.
Days Sales Outstanding (DSO)	This metric helps calculate the number of days that a company takes to collect money from customers who buy goods on credit.
Debt	Borrowed funds are known as debt
Depreciation	It refers to wear and tear of an asset due to the usage of that asset.
Direct Costs	These costs are incurred directly for manufacturing goods or providing services.
Discounting	It refers to the process of arriving at the present value of an investment using the interest rate that it can earn
Dividend	Returns given to a shareholder for investment made in the company
EBIT	Operating profit=Revenue−COGS−Operating expenses
EBITDA	EBITDA = Revenue−COGS−Operating expenses(excluding depreciation and amortisation)
Employee Benefit Expenses	These include expenditure in the form of salaries, bonuses and staff welfare expenses
Equity	It refers to the amount invested by the promoters or owners of a company.
Expense	It refers to the cost incurred while running business operations.
Extraordinary Gains Or Losses	These are expenditures or income from non-operating activities
Finance Cost	These are expenditures that are incurred in the interest paid against any debt taken.
Financial Risk	These risks are related to the financial aspect of the company and its projects
Financial Statements	It comprises the balance sheet, income statement and cash flow statement of a company.
Financing Activities	Activities undertaken for raising funds for the company.
Future Value	This refers to the value of money after a certain period of time, depending on the rate of interest.
Gains And Losses	These are non-recurring transactions that are made owing to the difference in the proceeds from the sale of an asset and the value recorded in the book of accounts.
Gross Profit	Gross profit=Revenue−Cost of goods sold
Impairment	It refers to the fall in value of an asset based on the difference between the recorded value of the asset in the books of account today and the most likely realisable value of the asset if sold today.
Income Statement	It tells you about the income and expenses that your firm has incurred over a period of one financial year.
Indirect Costs	These costs are incurred indirectly for manufacturing goods or providing services.
Intangible Non-current Asset	These assets lack a physical form, i.e., they cannot be seen or touched.
Interest	It refers to a return given to the lenders of capital as a reward for extending a loan to the company.
Internal Rate Of Return	IRR is equivalent to the rate of discounting for which the NPV is zero.
Inventory	It refers to the stock of unsold goods lying with the company
Investing Activities	It refers to the purchase or sale of long term assets of a company
Liability	These are economic resources that a company owes to others.
Market Risk	These risks occur due to a sudden change in market conditions in which your firm operates.
Market Value	The price at which an asset can be sold today.
Natural Risk	These risks are associated with natural disasters.
Net Present Value	The NPV technique measures the increase in an investor's wealth resulting from a particular investment. NPV=Total present value of future cash flows −Initial investment
Net Profit/PAT	Net profit=Total revenue−Total expense
Non-current Assets/Fixed Assets	These assets are expected to provide benefits or generate revenue for a period greater than 12 months and cannot be converted into cash within 12 months
Non-current Liabilities	These are those liabilities that are due and payable after one financial year or operating cycle, i.e., greater than 12 months.
Operating Activities	Operating activities are activities that are at the core of a company's day-to-day business.
Operating Risk	These risks affect the operational activities of a project.
Payback Period	It refers to the time taken to recover the full cost of the investment.
Perpetuity	When a stream of cash flows continues indefinitely
Present Value	This refers to the current value of money.
Profitability Index	It refers to the metric that helps in measuring how big is the value added in comparison to the initial investment when a new project is taken up.
Provision	It refers to an amount of money kept aside in order to meet contingent obligations of an enterprise.
Real Options	Real options are choices that are embedded in a project at year 0, but can be executed at a later stage of the project.
Regulatory Risk	These risks occur due to the environment in which they are operating.
Reserves And Surplus/Retained Earnings	Undistributed or accumulated profits of the company over the years.
Revenue	It refers to the final amount of money received after selling goods or services.
Tangible Assets	These assets have a physical form, i.e., they can be seen and touched.
Tax Expense	These are the amounts that are paid as corporate tax to the government on the profit made by the company.
Tax Shield	It refers to the reduction in taxes caused by taking on debt.
Terminal Value	The terminal value reflects the value of all the future cash flows that are not considered in the projected cash flow period
Vertical Analysis	It refers to a statement where each expense item is expressed as a percentage of a base item. The base item can be “revenue” or “total assets”.
Weighted Average Cost Of Capital	(Weight of debt x cost of debt) + (Weight of equity x cost of equity)
Working Capital	Current assets - current liability

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